Valeo, ACH Deal Long Overdue

Special Coverage

Frankfurt Auto Show

FRANKFURT – The chairman and CEO of Valeo SA says the French supplier’s plan to acquire a former Visteon Corp. air-conditioning plant in Plymouth, MI, may fall through because the company has been unable to reach a labor agreement with the United Auto Workers union, which represents 1,000 hourly workers there.

Speaking with journalists here at the Frankfurt auto show, Thierry Morin says the company wants to cut the hourly pay rate by a third at the Sheldon Road plant, from about $30 currently to $20, or less. The union, however, has resisted Valeo’s demands.

Valeo CEO Thierry Morin says pay cuts are necessary at Sheldon Road plant.

Morin admits the two sides might not reach agreement. “And then, maybe they come back next week with a good deal, and I will sign the deal,” he says. “I think we want to keep the discussion open.”

The talks have been ongoing since December, when Valeo announced it had signed a memorandum of understanding to acquire from Ford Motor Co.’s Automotive Components Holdings LLC the Sheldon Road Thermal Systems plant, which supplies AC units and radiators to Ford in North America.

Visteon handed the plant back to Ford in 2005 as part of a massive restructuring. Ford created ACH as a holding company to negotiate the sale of some 23 manufacturing sites and research facilities, or close them if necessary. Ford has sold two ACH plants so far this year, but several other deals, including Sheldon Road, are pending.

In March, Valeo officials told Ward’s they remained optimistic the deal would be completed by this past spring. But the wage issue has been a significant hurdle.

Morin says Valeo pays, on average, $21 as an hourly wage in North America, and to exceed that rate would adversely affect the company’s profits.

“We do not want to increase this average significantly through the acquisition of this plant,” he says. “There is a lot of restructuring, a lot of revamping to do in this plant. But we will be more than happy to help Ford, and Ford is a great partner.”

Here at the show, Morin says hourly pay “between $15 and $25 is acceptable, but everything above that generates problems.”

Suppliers with excessive hourly wages invest less in research and development and suffer from weak balance sheets, Morin says.

“I believe this is a wrong pattern,” he says. “Our pattern has always been the opposite. We reduce headcount whenever necessary. We reduce the number of factories whenever necessary, in order that we have better competitiveness.”

If it can be reached, the Sheldon Road agreement likely will follow the pattern of other UAW-represented supplier plants, with less restrictive work rules and lower pay for new hires.

Valeo has been restructuring for better profitability. Its manufacturing sites globally have reduced hourly costs 20% over five years, Morin says.

The supplier intends to divest $2 billion of its assets by the end of 2008. To date, Valeo has sold off or closed $850 million worth of assets, Morin says.

The corporate goal is to achieve an operating margin of at least 6% by 2010, he says.

[email protected]